Railroad giant CSX Corp. on Thursday said it expected the subdued shipping trends it saw in the third quarter to continue for the rest of the year, as retailers stay cautious on the items they get shipped to their warehouses and stores.
Executives made those remarks to discuss mixed third-quarter results for the company, whose rail lines cover much of the eastern U.S. And they follow what one analyst said were “low expectations” for the rail industry, as higher prices for essential goods leave less room for consumer spending on other merchandise that gets shipped by rail.
“Retailers remain concerned about the health of the consumer, and though destocking may have slowed, we haven’t seen this turn into sustained increases in order rates or imports,” Chief Commercial Officer Kevin Boone said on CSX’s
However, he said he saw the company’s domestic business “gradually strengthening” for the rest of the year.
The shift in demand last year toward basics left retailers stuck with warehouses and stockrooms full of things like clothing, TVs and electronics that they couldn’t sell without cutting prices.
Since then, stores have been more conservative on what they order and have shipped. Trucking and transport-services provider J.B. Hunt Transport Inc.
on Tuesday said that while there were signs of positive trends, “we are not at a point yet to say we’re out of the freight recession.”
CSX reported third-quarter net income of $846 million, or 42 cents a share, compared with $1.11 billion, or 52 cents a share, in the same quarter last year. Revenue fell to $3.57 billion from $3.89 billion in the prior-year quarter.
Analysts polled by FactSet expected CSX to report adjusted earnings of 43 cents a share on revenue of $3.55 billion.
Sales were hit by less-frequent connections with other forms of transportation to haul goods to different locations. Those connections, known as “intermodal” shipments, remained “challenged,” Chief Executive Joe Hinrichs said in a statement. The company shipped more coal, but coal prices fell, it said.
However, it also reported “solid gains in merchandise pricing.” And during the call, it said it had been “successful in converting traffic off the highway in a market facing plentiful truck capacity.” Rails and trucks compete for shipments, with the latter facing a downturn in demand and prices, leaving more trailers waiting to be filled.
Shares of CSX fell 0.9% in after-hours trade.
CSX reported results after its western U.S. counterpart, Union Pacific Corp.
put up a third-quarter profit that topped analysts’ expectations, despite a decrease in railcar shipments and “continued inflationary pressures.” Citi analyst Christian Wetherbee said Union Pacific’s results marked a “solid start to rail earnings against low expectations.”
The results for both rail carriers arrive as the shipping industry tries to rebound after supply-chain disruptions during the pandemic, after a surge in online buying caught the world’s distribution networks off-guard and drove prices and profits higher.
Concerns since have also grown over rail safety, following Norfolk Southern’s
derailment in Ohio earlier this year, and rail service, after years of cutting costs and guarding profits led to longer shipment times. Major rail operators say they’re trying to staff up and improve service. But after a rail-worker strike was averted last year, labor tensions have lingered through this year as rail operators and unions tried to resolve differences over time off and sick leave, which workers said was deeply insufficient.
Ahead of the earnings, CSX on Thursday announced the ratification of a paid sick leave agreement with a railroad signalmen union that covered nearly 400 employees.
BofA analysts last month upgraded CSX shares to a buy, after the company named Mike Cory, an industry veteran, as chief operating officer. The analysts said Cory was an operations protégé of Hunter Harrison, a rail executive, known as an industry turnaround artist, including at CSX.